Fault Lines in China's Economic Terrain

Those who fear China should read this sobering assessment of the challenges that it may soon face. Prepared by a rand team for the Defense Department's Office of Net Assessment, it is an exercise in futurology that explores alternative scenarios that could adversely affect China's economic growth. The authors select eight possible developments -- ranging from a socially disruptive rise in unemployment, a domestic financial crisis, and a sharp rise in world oil prices to a water shortage in the north, a military conflict with Taiwan, and a major epidemic (focused on aids, written before SARS) -- and estimate the negative impact of each on China's economic growth between 2005 and 2015 from an unspecified baseline. The potential developments would have adverse impacts ranging from a 0.3 percent to a 2.2 percent decrease in annual growth, threatening to lower China's GDP by 3 to 24 percent by 2015. Of course, it is possible that none of these threats will materialize (something the authors consider implausible), but if one does, it could easily trigger the development of others. Only skillful management and good luck will keep China on a course of robust growth.